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- At its last meeting in November, the Riksbank extended its target for QE purchases by an additional SEK200bln to SEK700bln, with the additional purchases to take place by the end of 2021. The Riksbank had already announced that it would continue with QE through H1, so in total SEK400bln of net purchases of QE are now confirmed for 2021. The Riksbank also announced that it would front load its purchases in Q1 and purchase SEK120bln of the assets in Q1.
- The first question for the February meeting will be, how much will the Riksbank buy in Q2? There is a risk that the Riksbank continues to front load its purchases, particularly with the current Covid-19 restrictions. We would not rule out the Riksbank continuing the SEK120bln pace seen in Q1 into Q2 (which would be taken dovishly by the market). However, we think its more likely that the Riksbank will slow purchases to somewhere in the region of SEK80-100bln for Q2. Irrespective of what is announced for Q2 purchases we don't think the total SEK400bln of purchases this year will be changed.
- The next question is surrounding the repo rate path. We expect this to remain flat for the forecast duration. The Riksbank has left the door open to cut verbally without communicating this through the rate path. As mentioned above, we are only around 1/8 of the way through the 2021 QE programme and the Riksbank (and many other central banks) have argued that negative rates are more effective in the post-pandemic recovery when demand can really be boosted effectively. And pretty sharp rebounds in demand are expected post-pandemic anyway as pent up demand is released and furloughed workers return to work. So at that point it is arguable whether negative rates would be needed at all – which we think its why there is no reflection of negative rates in the repo rate path. It would be seen as a vote of confidence from the Riksbank in the prospects of a recovery if a small uptick was added to the repo rate path towards the end of the forecast horizon. We look for little change to the medium-term growth and inflation forecasts.